Why are charities struggling to build and launch digital products?

NESTA audience

NESTA audience

This week I was privileged to keynote at the NESTA Impact Investment team’s Going Digital launch with NESTA’s Katie Mountain and Isabel Newman. Katie & Isabel asked me to speak because of my fairly unusual perspective – a tech entrepreneur who’s actually worked recently on a revenue generating digital project launched by an established charity. Earlier this year I was lucky to spend 4 happy months at vInspired, working with Sam Sparrow, Hannah Mitchell & Damien Austin-Walker getting awesome microworking platform Task Squad finessed and launched.

This blog covers the key elements of my NESTA talk without the personal anecdotes and side stories I included on the night. I should also just add a point of clarification here. This blog is about charities/CICs/social enterprises launching revenue generating digital products and services; it isn’t about making charity core business more digital. You won’t be surprised to hear that I have a view on that as well, but that’s for another day. It’s also not about my specific experiences at vInspired – it’s more generic observations across the whole sector. I’ve been a charity trustee myself for well over 10 years.

NESTA's Katie Mountain

NESTA’s Katie Mountain

At first glance, established charities appear to be ideal environments from which to launch digital products. They are crammed full of bright people with tons of good ideas, despite what they say they have more money to invest in product development than most startup businesses, they have a deep understanding of their target market and there’s lots of goodwill towards them, there’s existing infrastructure in the charity for the project to draw from (finance, office space, marketing & PR, etc) and they have easy access to politicians. So what’s making it so hard?

It’s unfamiliar territory…and there’s baggage

The best startups are said to be those that are “scratching an itch”. The entrepreneur sees a gap in the market and develops a product or service to SELL into that gap. The entrepreneur begs, borrows and steals seed funding and assembles a team focused on getting that product or service built and to market as quickly as possible. Money is frequently the key driver but money also qualifies early market interest in the product. Private sector success is often determined by getting to revenue in lightning speed & “owning” that niche before anyone else does. The founder or co-founders have probably had to put their houses up as collateral to raise the seed funding. The team eats, sleeps and breathes the project. Everyone’s under a lot of pressure. Often an unhealthy amount. Despite this, 80% of tech startups fail in their first 18 months according to Forbes (we’ll return to the 5 top reasons for failure at the end of the blog for anyone that’s interested). Charities simply do not work at this pace – but the private sector SMEs they’re competing against do. That’s a challenge.

The second part of this point is that the startup begins with a blank sheet of paper. For charities, many are creating digital projects to diversify away from dependence on government grants or to simply boost their income when other sources are drying up. This is a different type of driver. They are trying to do something that’s well outside their core business. They say that building a tech startup is like jumping off a cliff and assembling the plane on the way down. You need your team to be focused and on it. In charities, the digital project is often something people in the team are doing as an addition to their original day job. Working on projects part time is far from ideal and just doesn’t work. One of my conditions upon joining vInspired was that I would only undertake activities where I added value to the Task Squad project and did the things that other people in the team couldn’t do at that time. I stayed away from all-staff meetings, writing reports for trustees and so on.

The environment is risk averse…and no-one has any skin in the game

In my experience, many charity CEOs are very entrepreneurial. They’re also swamped with a million different things. Senior teams and trustees can be very risk averse. Back to that 80% failure thing – this is a high risk and uncomfortable place to be where you have to allocate money and time to something that probably won’t fly. Many charities are only engaging with this process because they are desperate to generate new income. Funders and sources of finance like NESTA, the Nominet Trust, the various social angel groups, will invest in certain projects but they expect to see the charity provide match funding, especially if it has reserves. This puts constant additional pressure on the startup project team as they are under non stop scrutiny and find themselves fielding questions from people in their own team unfamiliar with this territory and expecting to see results fast. For the people in that startup project, the “us” and “them” is very tricky. At least in a private sector startup you’re all working on the same project.

Mary McKenna

Mary McKenna

Too much investment can be a curse

In my view the best digital products start out on a shoestring budget. That way the team is more creative and it’s less of a big deal if the project fails.

A few people when they heard I was giving this talk lobbied me to say the issue for charities in building and launching digital products is lack of money and resources. I’m afraid I disagree. A large budget can lead to laziness, excessive outsourcing and maybe a “build it and they will come” product.

Back to the trustees. Often they meet infrequently but they’re the people who approve and sign things off. This doesn’t sit well with agile development, pivots and product iteration. All startup projects pivot. Getting the trustees into a place where they are comfortable with the risk involved and buy into the match funding element is definitely a challenge, but without it projects are not investor ready.

There’s a lot of meetings and governance

I understand the reasons why charities do this but it’s an additional overhead that other startups just don’t have to deal with. In an early stage private sector startup, decision making sits in the hands of one or two people. They have authority to do what they like. It’s their money. Decisions are made quickly and based upon imperfect data and information. Things move at pace. There are no reports to write, the list of KPIs or metrics monitored in the early days is short or non existent, there’s no-one else to keep in the loop, social impact isn’t measured. A charity tech project has to do all of these additional tasks on top of build and ship.

Pace is the single most frustrating aspect of working in a charity that I experienced. That and having to book meetings with people you can see across the room & who you just want to speak to for two minutes – because that’s how things are done. The structured environment slows everything down.

NESTA Panel - Isabel Newman, Mike Dixon, Kieron Kirkland, Emma Thomas and Shreenath Ragunathan

NESTA Panel – Isabel Newman, Mike Dixon, Kieron Kirkland, Emma Thomas and Shreenath Ragunathan

The team is any organisation’s most valuable asset

Charities have great people. Sam Sparrow who leads vInspired’s Task Squad project is one of the most impressive and talented people I’ve ever worked with in any business. There’s been a terrific drive to get a lot of charity team members onto and through accelerator programmes. What charities are bad at doing is allowing their newly trained intrapreneurs to be responsible and accountable and just to get on with things; especially with people that are considered to be “junior”. Structures are hierarchical where they need to be flatter and more matrix or project driven. In a tech startup, the most appropriate person is allowed to get on with what they’re good at within clear and agreed parameters. I’ve found that in charities, the decision making boundaries are sometimes unclear and this is one reason why the CEO and trustees end up as bottlenecks.

On top of this, there’s a Europe (world?) wide shortage of digital skills, developers and people with good commercial skills and there’s a great deal of competition to attract the best talent. Because these skills are in short supply, the people taking important decisions may not be properly equipped to do so – especially about digital. This results in poor commissioning and bad management of suppliers.

Here’s my presentation slides from the night:

I’ve probably just scratched the surface here and am very conscious that I’ve put forward an awful lot of challenges without many useful solutions. Fortunately, on the night there was an expert panel present (Kieron Kirkland of Nominet Trust, Mike Dixon of CAB, Emma Thomas of YouthNet and Shreenath Ragunathan of Google) all of whom were able to voice their own very practical advice on how the sector can improve in this space.

For anyone who’s wondering about the top 5 reasons startups fail – here they are:

  1. Lack of deep market knowledge – know your audience!
  2. Lack of USP or the ability to properly articulate it – market test your idea, work on your messaging and remember that some ideas are just bad ideas.
  3. Failure to communicate and lack of clarity
  4. Leadership issues – not so much for a charity – this one is more to do with flaky founders or personality clashes amongst co-founders that lead to the startup imploding
  5. The business model is wrong or underdeveloped – this one is KEY – spend as long as you need to getting your business model right

As always I am very much looking forward to your comments on this rather long blog. I hope we can have some useful and positive narrative about what we can all do to make this better because frankly, we really need to. If you have any questions for me about any of the above then please get in touch with me or post your questions up in the comments section for everyone to read and I’ll do my best to answer them.

17 comments

  1. Hi, Mary.

    Thank you so much for this. Incredibly useful.

    Two points.

    1. First of all, I wonder if you could share a few more thoughts about something that is referenced throughout, but not really addressed head on. You rightly highlight the need for tech start-ups to find a niche and SELL as being a key component of their drive, their hunger and their focus – it is easy to assess progress with a bottom line.

    A lot of charities don’t sell, and certainly not digitally; they find money (through fundraising) and then try to do good things with, for and to people who require particular support or a service – but wouldn’t dream of charging them.

    While we see a growing amount of tech-for-good start-ups seeking early investment to start a digital business rather than run a time-limited ‘project’, is the need to focus on ‘profit’ (within a broader not-for-profit vehicle) or revenue the real barrier to successful digital products with established charities? It can be quite a shift in mindset.

    2. I’d say some of the frustrations you share are the same for any project initiation in established charities, and not just related to tech. Wondered if you had any tips to share about how you managed to get around some of the barriers or challenges you shared?

    Thanks again for the piece. Looking forward to more.

    Andy

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    1. Hi Andy – thank you for commenting. As you rightly say, it is the second of the digital programmes that you mention that I’m writing about here. I’m writing about it & bringing attention to it because many charities are struggling to get their tech-for-good startups “investor ready”. There’s been an article out this week about how the 7 investments the NESTA Impact Investment team have made so far have all been into private sector businesses with a significant social purpose. They haven’t been able to take an equity stake in any charity or social enterprises because the projects that are aligned to their investment themes aren’t far enough along. This is a growing concern for NESTA and other social investors as it’s now well over 4 years since the change of government. Having said that, I often meet entrepreneurs who tell me they’ve been in business 15 years but wasted the first 10 figuring things out – so maybe we’re all being too harsh.

      I guess on that basis the more important thing for charity digital projects is to figure out how to generate revenue successfully as opposed to getting to breakeven quickly. This comes back to qualifying & finessing the business model over & over again until the right one emerges.

      On the specific challenges, the hardest one to tackle is probably charities attracting or indeed accessing talent with the right skillsets. vInspired is very lucky to have the three people I name checked in my blog working in house in the charity. They are all people I would employ in a private sector startup in a heartbeat. Many charities are not so lucky and are forced to outsources and then get ripped off by consultants and suppliers when it comes to digital.

      In my view the sector should mobilise itself and find a way to overcome this by setting up some sort of digital agency populated by a team of skilled people who are interested in working as interims in various charities and social enterprises. The government could allocate 20% time from the guys in, for example, GDS – it’s all money from the public purse so why not.

      Charities also need to figure out a better way of using and engaging their trustees. They spend ages attracting and interviewing people and then many have a very arms length relationship with the people on their board. Again, with our Task Squad project we worked closely with a small number of the vInspired trustees (one in particular was fantastic) and they were then better placed to give us practical help and advice but they could also represent us to the rest of the trustee board in a positive way – and that was very useful.

      Some of the challenges on my list are difficult to work with. The governance requirements (self and externally imposed on charities) are a significant additional overhead. I don’t know what you can do about that.

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  2. Really interesting blog. It strikes me that these challenges are at least partly a function of charity size. We are a small charity, (digitialising our core service), and our experience diverges in a number of ways. For example, we work as a project team and we are not at all hierarchical, we hold few meetings (perhaps too few!), and our trustees have been sanguine about risk and change. Since the project is our core business, we are all invested in it. That said, we have not found it easy. Our biggest challenge has definitely been lack of tech funding – we are covering the shortfall by stretching budgets and much input from some fantastic volunteers. And since we are new to this world, our learning curve is steep…

    As you say, your blog focuses on charities developing digital products for revenue generation, not on making their core service digital. I hope that you will write a blog on the latter too. Technology offers huge opportunities for charities to improve, extend and scale their services, at least in certain circumstances, but the obstacles can seem overwhelming.

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    1. Thank you for commenting Janet. It’s great that you’re making progress despite some challenges. In the current climate there isn’t really an option I’m afraid and I wish you the best of luck.

      As I said at the beginning, I spoke at the NESTA event & then wrote this blog because I’ve had rather an unusual year and I thought by sharing my experience in this way it might help more people or at least shine a light on what some of the challenges are. It would be great if more tech entrepreneurs like me could be parachuted into charities but that’s for someone other than me to figure out.

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  3. Hi, Janet.

    Wishing you all the best for your ambitious project. If it’s of use, I have a few digital volunteering approaches logged – mainly start-ups trying new things rather than charities digitising an existing process. Happy to share. Might be worth seeing how they approach things.

    Drop me a line at andy@aamassociates.com and I’ll send them on. Cheers.

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  4. Great insights, as ever. I particularly like: “In my view the best digital products start out on a shoestring budget. That way the team is more creative and it’s less of a big deal if the project fails.”

    Brian

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    1. Thanks for taking the time Brian. I was just chatting about this yesterday. It’s so sad to see charities spending (wasting!) vast sums of their reserves on bad or badly delivered digital projects.

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  5. You’re right on the mark Mary. As an early stage tech ourselves, but also with plenty of charity experience, it’s been fantastic to move, change direction, change again as and when we need to – and without any building overheads to manage and fund. Our spend is minimal and we moved to a revenue (although low cost) model immediately. Sally

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    1. Yeah – I’d definitely like to see more charities having a go at “lean” instead of spending a lot of money on overheads that don’t really add value. Lean is easy to do if you start off that way. It isn’t easy to row back to when you’re coming from a different place unfortunately.

      Thanks for the comment Sally. RunAClub’s model would be a great one for many charities to embrace and learn from. You guys rock!!!

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  6. Very insightful article, Mary! The launch of any income generating enterprise, tech or otherwise, is challenging from inside a non-profit/charity. Our experience at Ecotrust suggests that one key factor for positioning these ventures for success is a) signaling and planning for their eventual independence from the get-go, and b) liberating the staff person who is the de facto founder/creative spark to pursue it full time. That’s not easy to do, since it can create considerable disruption – not least because many organizations aren’t set up to quickly backfill for a departing programmatic or management position. Having just done that, leaving the CEO role and all it’s myriad distractions to focus on the Resilience Exchange as its first prototype launches, I can confirm that it is a tremendously energizing to have such a singularity of focus. We’ll see how it works out, but are now positioned to fail fast, adapt, pivot as you suggest. Also agree with you on the tremendous potential for non-profits to incubate tech enterprises: we had very comfortable amounts of seed funding, and luckily the wisdom to take a user-centered design approach and a product development framework.

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    1. Thank you for a very articulate comment Astrid & good luck in your new role which as you say will most likely be very liberating. Charity CEO has to be one of the hardest jobs around and they get so much stick from the media & even the public that it’s really quite depressing.

      Yeah – juggling of staff time in charities is a real issue when trying to incubate tech projects but also competing in the market for talent is a big problem.

      Do keep in touch and let me know how you”re getting on at the Resilience Exchange.

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  7. Thanks for the fantastic response, Mary. Very helpful.

    One other line of enquiry is about the role of social sector funders in this. Nesta and the Nominet Trust clearly understand the importance of this space, but do you get a sense that other funders understand the value that might be gained from helping such approaches grow, and that they have a leadership role within that?

    While some charities will have reserves to use for such projects, the vast majority won’t, and therefore it is easy / important for them to follow the funders’ lead. Have you een as sense of that shifting?

    Cheers.

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  8. Well written, Mary. I’d be interested to hear of any examples or case studies of Charities you may have come across who have successfully built and launched digital products.

    Mark.

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